In the wake of Burma's current tragedy, a
disturbing misconception has been circulated: that a decade of economic and
financial sanctions from the United States and European Union has born bitter
fruit in the form of cyclone Nargis. If
only - the argument goes - Burma's ruling State Peace and Development Council
(SPDC) and military had been free to dispose of the revenues denied to it by
sanctions, then the Irrawaddy delta would today be replete with Burmese aid
workers and recovery teams, equipped with sophisticated logistical support.
Indeed, if only more foreign investment had been made in Burma's resources
sectors, their capacity would have been all the greater due to the high quality
of the local infrastructure that the regime would have built.

This anti-sanctions case rests on evasion of an unpleasant truth: that it is not sanctions that have
crippled the Burmese economy, but the military - the same military that has
transferred billions of dollars accrued from overseas sales of Burma's gas,
fishing and mining assets into their private bank accounts, rather than to the
government's budget.

Two economies, two worlds

In 1962, the year the military took power,
Burma's per-capita GDP was around 25% of that of Thailand. By 1997, the
year that significant sanctions were first imposed, the ratio was around 12.5%
(at best, given that Burma's official growth rates are wildly overstated).
That growing disparity was the result of over three (largely sanctions-free)
decades of military rule. The self-imposed isolationism of the regime in this
period included isolation from rational economic policies. The choices it made
instead - uncontrolled money-printing, arbitrary changes to the currency's
denomination, diversion of fiscal and other resources on infrastructure to
serve purely military needs, arbitrary seizure of property, the use of forced
labour, bizarre and capricious changes to taxes - were, singly and in
combination, responsible for destruction and wastage on an enormous scale.

Aung Zaw, "Burma: the cyclone and the referendum" (6 May
2008)In this light the unwillingness of the regime
to aid the victims of Nargis is more than an outrage in itself: it is rooted in
the character of Burma's regime and ruling system. Their wholesale indifference
towards Burma's people is connected to the way that they have traduced what
could and should be a prosperous economy to the point that the institutional
capability to deal with the cyclone's aftermath is practically nil.

The economic incompetence of the SPDC has
produced a situation in which rescue-boats run out of fuel before they reach
the victims; and only the modest assistance provided by Burma's own citizens
and the few foreign-aid agencies able to operate in the country can alleviate
the suffering of survivors.

It is vitally important now that the efforts
of Burmese people and of the external aid organisations to protect lives and
restore a minimum of security in the devastated landscape are supported. But to
restore Burma's economy so that it can provide the foundations of sustainable
livelihood is a long-term task that can only be accomplished by a range of
policy responses - of which sanctions are one - designed to break the regime's
hold on power.

The principal impact of sanctions is not on
ordinary Burmese, a fact that reflects the existence of two economies in Burma.
The first is comprised of small-scale, low-tech businesses typically centred
around extended families involved only in the domestic market. The second is composed of larger-scale, more
modern enterprises that benefit from trade and investment with the outside
world.

The overwhelming majority of Burmese operate
within the first sector. The second sector is dominated by the military, both
in terms of direct involvement in the ownership and management of firms and by
its controls over private businesses (which are obliged to deal with the rest
of the world through military-run "holdings corporations". Trade sanctions
impact on the military-controlled sector and thus directly affect the junta's
core interests, with relatively little negative economic effect on the everyday
Burmese person - an effect that in any case would be far outweighed by the
regime's economic vandalism).

That is why sanctions are in place - to
restrain the extent to which the SPDC can profit from its oppression of the
Burmese people, to reduce the pecuniary lure of authoritarianism. This is
especially so for the recently imposed and personally targeted financial
sanctions which by definition hurt only the regime and its cronies.

No one in Burma except the junta and its close
beneficiaries can access any foreign exchange (FX) sent by their families or
earned from honest business. All FX is kept by the regime. For Burmese even to
obtain the local-currency value of any FX receipts they must
deal with one of the three money-exchange centres owned personally by upper-echelon
members of the SPDC. Even then the junta takes, providing
less than the market-exchange rate equivalent in the local currency. The regime
may indeed care little for the salons of Europe, but the same certainly cannot
be said for the banks and other economic agencies of the west.

A single viewing of the YouTube wedding video
of Than Shwe's daughter is enough to show what personal integration with the
world economy means to Burma's rulers - a personal line of credit to be
splurged on obscene opulence at the expense of the suffering millions (see
Kyi May Kaung, "A reality-check in Burma", 10 November 2006). If
anything, these sanctions should be tightened to close remaining loopholes and
extended to prevent (to take just one example) senior regime figures using
assets that by right belong to Burma's people to enrol their children in
foreign universities.

A strategy of denial

The nature of Burma's divided economies means
that external investment will not transform the way the country is ruled. The
regime and its control over the lucrative sources of income in Burma is the problem - so giving more
opportunities to the country's rulers to extract wealth from people, without
any political change, would be like supplying even more drugs to an addict.

Moreover, the liberalising effect of openness
to trade and investment can easily be exaggerated. After all, the fantastic
enrichment of the House of Saud has not notably diminished its taste for
oppressive Wahhabism. Nor is it clear that lifting sanctions will necessarily
lead to a flood of inward investment. Burma has attractive primary resources
that are already the subject of outside interest (and activity); but the economic
environment with its rampant corruption, dysfunctional financial system, poor
infrastructure and unreliable energy supplies is hardly attractive in a wider
sense.

The environment in Burma will be favourable to
foreign investment when property rights are respected, the rule of law is in
place and rationality has returned to policy-making. In other words, the
benefits from increased foreign investment will become available only after the
SPDC is gone. Until such time, the long-term interests of the people of Burma
demand that it should be denied succour. Sanctions are an integral part of such
a strategy of denial, and must be sustained so that the immense tragedy of
cyclone Nargis becomes the prelude to real change in Burma and not to a
reinforcement of a pitiless regime's power.